Budget first test of Obama’s reform ability

Despite the irrepressible, irresistable hoop-la of an American election campaign, Barack Obama’s victory was never going to replicate the soaring optimism of four years ago. Grinding political reality and a still sluggish economy have seen to that.

But the question now is whether a re-elected Obama will have the chance and the ability to achieve substantial reform in his second term or whether the bitter partisan divisions will continue to paralyse the political agenda.

That will include the need for the White House to compromise with a still-hostile House of Representatives.

Despite the experience of the first four years, Obama sounds confident he can manage this in his second term.

It’s undoubtedly harder to do this successfully than it was in the Clinton era, where moderate Republicans were less of an endangered species and the Tea Party was yet to stir itself into populist action.

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But in his first term, Obama also developed a reputation for passivity in trying to reach out to Republicans as well as Democrats in Congress.

The hope is that being liberated from the need to ever contest another election will make him more willing to do deals that disappoint the Democratic base.

The first test of that will be the need to quickly do a deal on the budget in order to avoid heading lemming-like over what is known as “the fiscal cliff’’ next January.

The automatic alternative of a combination of close to $600 billion in tax rises and massive reductions in government spending would clearly be disastrous for momentum in a still-fragile US economy.

Yet even as this deadline loomed, the Republican and Democratic leadership in Congress and Obama in the White House proved unable to fashion a credible compromise.

Instead a combination of the radical right in the Republicans and the left in the Democrats have consistently overwhelmed the centre.

Obama is also regarded as relatively hostile to much of the business community, bolstered by his campaigning against Mitt Romney as the candidate of the rich and greedy capitalism.

The election result has still not resolved this larger argument about the respective roles of government and business in promoting economic growth.

Obama’s most politically successful economic policy was in backing the bail-out of General Motors and Chrysler, a move that paid huge dividends in key swing states like Ohio.

The new health care program of ObamaCare infuriated his opponents but remains his most significant legacy thus far – along with the rising costs.

Like Australia, there is still a large gap between revenue raised and the expectations created about government assistance. The division in the US society also shows little sign of being smoothed over as a result of the election.

Romney was more popular with white voters, older voters and men.

But Obama managed to hang onto younger voters and an increasingly Hispanic and immigrant population.

His re-election will encourage Republican moderates to argue that their party has to become more centrist and accommodating to the huge demographic changes in the US.

But it may also harden the right of the Republicans into rejecting the Obama win and preparing for another four years of trench warfare.